Exclusive: Jawbone nears big investment from BlackRock

Jawbone, the buzzy but financially strapped maker of Up fitness bands and Jambox speakers, is close to receiving a major investment from BlackRock BLK, the world’s largest asset manager. According to sources, BlackRock is considering investing as much as $300 million.

The San Francisco company has raised more than $400 million during its 16-year, roller-coaster existence, but its financial position has become increasingly tenuous as it has missed production deadlines and fallen behind in the markets it helped create.

Re/Coderecently said Google GOOG is considering a “strategic investment” in Jawbone, but Fortune‘s sources say Google isn’t actively considering such a move.

Neither Jawbone nor BlackRock would confirm details of the transaction, which isn’t complete and could yet fall through. Jawbone also is talking to other financial institutions. But sources close to both parties confirm the two are in advanced talks for the investment, which would constitute an eleventh-hour lifeline for Jawbone.

The company’s signature product, the Up3 fitness-tracker bracelet that includes a heart-rate monitor, has been delayed for months. Last year, Jawbone also settled a breach-of-contract lawsuit with Flextronics FLEX, its previous contract manufacturer, which had sued to recover $20 million in delinquent payments. According to sources, Jawbone has since defaulted on a payment plan set up to satisfy the debt, which last stood at $16 million. Jawbone denied it is in arrears on its payments to Flextronics, which didn’t comment on the matter.

As it tries to raise funding to shore up its finances, Jawbone also is making changes to its star-studded board of directors. Former CEO and co-founder Alexander Asseily will relinquish his position as chairman. It isn’t clear who will replace him, but candidates would include Jawbone’s investors and current directors—including venture capitalists Ben Horowitz, Vinod Khosla, and Mary Meeker—all of whom have been actively advising Jawbone during its hour of need.

Jawbone is a unique company in the lore of recent Silicon Valley history. (See “The trials of a 16-year-old can’t-miss startup” from the February 2015 issue of Fortune.) It grew out of research conducted in noise-canceling technology at Stanford University in the late 1990s and struggled as a small outfit until 2007, when its Aliph wireless headset took off. The company’s co-founder, Hosain Rahman, by that time had become CEO and teamed up with designer Yves Béhar, who has continued to work as a part-time executive for the company. Jawbone’s wireless speaker, the Jambox, created a new category in consumer electronics, but failed to maintain a leading market share. Similarly, Jawbone helped popularize the “wearables” market but has ceded the leading position to crosstown rival Fitbit.

Jawbone has had trouble raising money for the past year, coinciding with its challenges to release its latest product. On Nov. 5 last year the company began taking pre-orders for the Up3, saying the product would be available “by the end of the year.” On Dec. 11, Rahman told Andrew Ross Sorkin of The New York Times in an onstage interview that the fitness tracker would ship “soon.” Instead, a week later, Jawbone announced the Up3 would be available “early next year” and that customers who pre-ordered would receive a $40 discount on the $180 device. The company’s website currently says new orders will take 10 to 11 weeks to fulfill, pegging the device’s arrival well after the release of the much-anticipated Apple Watch. Apple AAPL has said it plans to ship the product in April, and on Thursday it announced that it will hold an event March 9, presumably to unveil the watch.

A source close to Jawbone suggests the company is days away from announcing a more specific timeline for releasing the Up3. It likely is waiting to secure the funding, which would be critical to financing the manufacturing and shipping of its product. Rumors have persisted for months that Jawbone has had trouble paying its bills. A rumor even went around the company’s San Francisco headquarters that there was no milk in its kitchens because the company hadn’t paid its dairy vendor. As with the other more substantive information under discussion, a Jawbone spokesman declined to comment.

Free phone apps count steps as accurately as pricy fitness bands

You don’t need a specialized fitness monitor to track how far you walk each day. Step and activity tracking apps are multiplying to take advantage of movement sensors already inside smartphones. But can these free apps track step counts as well as a $99 bracelet monitor?

Yes, according to a new study published in JAMA. With more than half of Americans carrying smartphones—versus about 1 percent wearing specialized activity trackers such as those made by Fitbit or Jawbone—researchers think tapping into these apps could help many more people get active.

For the study, researchers outfitted 14 healthy adult volunteers with 10 different tracking methods: smartphones in each pocket running four different apps, three belt-clip pedometers and three wrist-based fitness bands. Each tech-laden volunteer then walked on a treadmill while researchers manually counted their steps.

“Most of these devices are accurate,” says Mitesh Patel, an assistant professor of medicine at the University of Pennsylvania’s Pearlman School of Medicine and coauthor of the new report. He and his colleagues hope the “findings help reinforce individuals’ trust in using smartphone applications and wearable devices,” they note in the paper.

But not all trackers reported identical results. The biggest outlier was Nike’s NKE Fuelband, which tended to count fewer steps (as much as 20 percent less) than were actually taken. The iPhone 5’s Moves app was more likely to report additional steps. Closest to the accurate number were the pedometers Fitbit One and Fitbit Zip.

Pedometers, which clip onto the waistband at the hip, have been the gold standard for accurately counting steps both in and out of the lab, says Greg Welk, an associate professor of kinesiology at Iowa State University, who was not involved in the new study. But these pods failed to really catch on with consumers.

When companies began moving the counters to more familiar zones—like the wrist, via bracelets and watches—and integrating more information, user-friendly interfaces and more social sharing, millions more people signed on.

The integration of step counters into smartphone apps represents an even bigger opportunity to make activity monitoring more widespread. And in Patel’s small study, the apps actually outperformed wrist-based trackers in accuracy. That finding, however, might be due to the fact that volunteers wore the phones in their pants pockets, close to the hips where stride movements are more distinct than they are on the wrist. In the real world, of course, smartphones are not shoved into a pocket and ignored all day.

Which gets to a big problem in this research, which “still doesn’t answer the question of how accurate these things are in the setting where they are meant to be used,” says Ray Browning, associate professor in Colorado State University’s health and exercise science department. That is, outside of slow, deliberate treadmill walking. In the case of the smartphone, he wonders, will apps measure steps as accurately if the phone is carried in a bag, in hand for typing or up to the ear for talking? Patel agrees that his findings are limited: “We don’t know what’s going to happen when people get out in the real world and move around.”

And for many people, walking is not their only daily activity. “The challenge really is when people are doing things other than walking,” Browning says. Many current step trackers will miss exercise from a bike ride, yoga, gardening or elliptical trainers, he notes.

Motivation to move

The broader goal of step counters is to help people be more active. An element of quantification—and competition—might the first step in helping someone choose to walk to a nearby restaurant for lunch rather than drive, Browning says.

While trackers dial up their accuracy, motivation is becoming the next frontier. “We’re still trying to figure out how to transfer [activity data] into long-term behavior change,” Browning says. Improvements could come in the form of more engaging platforms, different types of competitions, financial incentives from employers, doctor referrals or well-timed text messages. Ideas from behavioral economics, for example, could help people get and stay motivated, Patel and his colleagues noted in a JAMA op-ed last week.

About those new Fitbit products, by the way: they’re called the Charge HR and the Surge. Each device is made to be worn on the wrist, count your steps, track your sleep, and continuously track your heart rate. The Charge line in particular should look familiar; it’s a reworked version of the ill-fated Force tracker the company had to recall after some users reported skin rashes after wearing it. Putting my fears behind me, I tested the $150 Charge HR and the $250 Surge for several weeks to see how the new devices performed.

Initial setup of the devices required downloading the Fitbit mobile application, pairing the band to your smartphone, and going through a series of screens covering “Wear and Care” tips. The extra instructions are new to the setup process and strike me as an attempt to head off another rash incident by reminding the user to regularly remove the band, keep it clean, and switch arms if irritation occurs.

I wore the Charge HR to Las Vegas in early January for the Consumer Electronics Show. As I trekked the show floor in search of calm amid chaos, the smart band dutifully counted each step, 81,872 in all, over four days.

Each night before sleeping, I’d put the Charge HR into activity mode by holding in the only physical button located on the left side of the device. I didn’t realize at the time that the Charge HR (as well as the Surge) is capable of automatically tracking sleep activity. You simply lay down, go to sleep, and the tracker does what it does best—track.

The addition of adding automatic sleep detection is great, and fulfills the promise of the wearable device as a smart object that fades into the background. You shouldn’t have to remember to indicate when you lay down or wake up by interacting with the device on your wrist; with Fitbit’s new bands, you don’t have to. At one point during my testing, the Surge captured a Sunday afternoon nap I was trying to sneak in without anyone knowing. (Busted.)

There has been a push of late for fitness bands to be more than just fitness bands. In response, Fitbit has added a couple smart watch-like features to its new products. For example, the Charge HR will alert you of incoming calls with a short vibration, followed by a scrolling display of the name and number of the caller. The Surge also has caller ID, along with an ability display incoming text messages. The vibration for an incoming call is brief and easy to miss; the alert for an incoming message, on the other hand, doesn’t suffer from the same lack of enthusiasm.

When a text message arrives, the Surge vibrates and a small message icon is displayed next to the top-right button. You must press that button to display the message. The extra interaction goes against one of the main selling points of wearables that I mentioned above: passive technology that’s supposed to get out of the way and allow you to keep moving. I found that having to stop what I was doing to press a button slowed me down enough that I preferred to instead pick up my phone and read the message. Instead of requiring the extra step, it would be nice if the Surge displayed the message for a set amount of time giving the user a chance to read it and decide what, if any, action is needed.

That’s not to say that I didn’t appreciate not having to wear a smart watch on one wrist and a Fitbit on the other while testing out the Surge. I just wish notifications were handled differently.

Without a doubt, the new heart-rate tracking feature in the Charge HR and Surge is the best I’ve used in a fitness device. Instead of only logging my heart’s activity only when prompted or at seemingly sporadic times, Fitbit has figured out a way to measure my heart rate using an optical heart monitor every five seconds without causing battery life to suffer. (An optical heart rate monitor, you ask? In essence, LED lights reflect on your skin to detect blood volume changes as your capillaries expand and contract with your heart beat. Yes, really.) I was able to squeeze the advertised seven-day battery life from the Surge, and four days of the five advertised for the Charge HR.

With Fitbit’s mobile app, I was able to pull up a graph and view my heart rate for any given day. For the record, my average resting heart rate was 67 beats per minute, with my sleeping heart rate reporting in around 54 b.p.m.

You can navigate the Surge’s abilities through a combination of buttons and screen touches. You can also enable outdoor GPS tracking to map a run or hike. With a swipe across the screen, you can view statistics—your progress towards your day’s goal, live heart rate, calories burned, and so forth. Charge HR users can still track runs using GPS using the Fitbit app on a smartphone.

At this point you’re probably wondering: Is Fitbit’s next-generation fitness tracker a replacement for a smart watch? The answer, at least for the foreseeable future, is no.

In the case of the Surge, it’s a fitness band first and foremost. It barely resembles a watch, let alone a smart watch, and its smart features are in need of refinement before it can be put in the same class as a Pebble product, Android Wear device, or Apple’s much-anticipated Watch. Here’s the good news: Most of those refinements can be accomplished through software updates.

Meanwhile, the Charge HR offers the experience Fitbit users have grown to know and love with the added ability to monitor your heart’s health. But it lacks smart watch features beyond caller ID.

Of the two products, I preferred the Charge HR more—not just from the standpoint of price, but also of aesthetic appeal. And it’s important for me to offer one important disclaimer: no rashes were experienced during testing.

“Logged In” is Fortune’s personal technology column, written by Jason Cipriani. Read it on Fortune.com each Tuesday.

Why Marc Benioff really, really loves Fitbit

When Salesforce CEO Marc Benioff took the stage at Fortune’s Brainstorm Tech dinner in Las Vegas Monday night, he used the opportunity to profess his love for Fitbit, maker of wearable activity trackers.

Why? According to Benioff, the startup is an apt metaphor for what he calls a “one-to-one customer journey”—an intimate way companies can connect with their customers. (Fitbit, it should be noted, is a Salesforce customer.)

Watch the full interview with Marc Benioff from Fortune’s video team:

Just a few weeks ago, before taking off for a vacation at his Hawaii home, Benioff says he received a new Fitbit in the mail.

“I put it on right away and I started a journey with them,” Benioff told his interviewer, Fortune senior editor-at-large Adam Lashinsky, and the roomful of marketing executives in attendance. “As soon as I got the product I put the app on my phone. Then I had to sign up and I got an email from them [Fitbit]. “

Benioff said Fitbit tried to upsell him, asking if he’d also be interested in buying a “connected” scale. He also received an email asking if he would be interested in connecting with everyone else in his social media network that is also a Fitbit user.

“Suddenly I go from receiving a package in the mail to having multiple products and being connected to my friends and receiving multiple emails,” Benioff said. (Speaking of his friends, after signing up for the Fitbit “community” he received an email from Michael Dell—also a Fitbit user—asking if he was OK. It turned out Benioff hadn’t been very active that day.)

As companies pursue these kinds of new customer interactions online and offline, Benioff hopes his company will be the one to provide the software that enables them to do so. When he founded Salesforce CRM 15 years ago, the idea was to give the sales organizations of companies an easier way to connect with customers. That “way” was software delivered as a service via the cloud.

“Then this incredible shift happened which was our customers came to us and said, we want to connect with our customers in new ways,” Benioff said. “We call it marketing, but it’s not really marketing—it’s about customer management.“

The barrage of newly-possible customer interactions has led to an influx of data. Fitbit, for example, can know a user’s location, friends, physical activity, and heart rate. But even Benioff admits there’s a downside to all of that information.

“We’re all heading to creepy,” he told the roomful of marketers at the Fortune dinner. “We all know that.”

The data present another challenge: Even though companies can now collect mountains of data on their customers, it doesn’t mean they know what to do with it. For example, Benioff said he shared his heart rate data, collected through his Fitbit, with his doctor.

“I sent it to my cardiologist and you know what he said?” Benioff asked. “He said, ‘I have no idea.’”

Still, the outspoken CEO is convinced that this kind of intimate customer relationship is the future.

“This is a metaphor,” Benioff said. “The reason I’m telling this story is so that you can get an idea of where we are going in the world, with everything getting connected.”

Fitbit unveils high end model to rival Apple Watch

This post is in partnership with Time. The article below was originally published at Time.com.

By Dan Kedmey, TIME

Fitness device maker Fitbit unveiled three new watches to monitor health on Monday, including a high-end model that could help the company fend off competition from Apple’s AAPL hotly anticipated smart watch.

Fitbit Charge, Fitbit Charge HR and Fitbit Surge all feature LED displays that track the device’s usual health metrics, such as heart rates and footsteps, and will incorporate new features such as automatic sleep detection and incoming calls.

The company has packed the highest end model, the Surge, with eight sensors that continuously monitor health statistics and the wearer’s location to create a comprehensive log of activity throughout the day. Fitbit priced its newest watches from $130 for the Charge to $250 for the Surge, making the most expensive model $100 cheaper than the $349 starting price for an Apple Watch, which is scheduled to launch in early 2015.

Fitbit will not only have to overcome competition from smartphone makers, but also its own bungled rollout of a previous line of wristbands that were recalled last February amid complaints from users about skin rashes.

Fitness trackers: A narcissist’s dream, but what else is behind the boom?

Mobile tools tracking everything from your heart rate to your blood-oxygen level are flourishing. Last month, chipmaker Intel INTC paid $100 million for Basis Science, a smartwatch capable of monitoring everything from perspiration to your heart rate. This follows Jawbone’s acquisition of BodyMedia, a maker of armbands that track exercise intensity and sleep patterns, and smartwatch maker Pebble’s ability to raise a record $10.2 million in less than 30 days through crowdfunding site Kickstarter.

Now all eyes are on Apple AAPL, which is rumored to have a new app called Healthbook in the works (perhaps with an accompanying iWatch), which will function as an all-in-one resource for monitoring and tracking everything from basic fitness stats (steps, calories, etc.) to blood pressure, heart rate, sleep cycles and maybe even next-gen data like blood-sugar levels, hydration, and oxygen saturation. (Update: At this week’s Worldwide Developers Conference, Apple unveiled the new tool — without the expected iWatch — under the name HealthKit).

So what’s behind the boom? Well, cheap and increasingly sophisticated sensors are definitely part of it. Samsung’s new Galaxy S5, for instance, comes packed with 10 different sensors capable of detecting everything from a user’s heart rate and fingerprints to temperature and humidity, as well as now-standard stuff like acceleration and orientation. By some estimates, there will soon be trillions of sensors in the world, as the so-called Internet of Things (smart, connected objects, from refrigerators to wristwatches) grows exponentially. In terms of fitness, these sensors have suddenly made it possible for anyone with a smartphone to easily monitor and log detailed bio data.

Tied into the proliferation of sensors is the rise of the “quantified self” movement. In 2007, Wired Magazine editors Gary Wolf and Kevin Kelly coined the term “quantified self” to refer to the use of new digital technologies to record and compile data on the most intimate aspects of one’s personal life–from physical and mental performance to foods consumed and even blood oxygen levels. From Silicon Valley’s tech-oriented early adopters, the “quantified self” idea has since spread to a much broader audience interested in health and wellness.

As a hack athlete, I can vouch for the appeal. Last week, I ran to a yoga class and logged the trip using Strava, a website and mobile app that tracks cycling and running routes, distances, speed, and more via GPS. Strapped to my chest was a Wahoo TICKR heart rate monitor that connects to the Strava app on my phone via bluetooth. I’m also an avid cyclist and use Wahoo’s RFLKT, a kind of mini-bike computer, to track routes, speed, and personal bests. I’ve also experimented with sleep monitoring via Sleep Cycle, and I’ve used Withings’ smart scale to keep tabs on my weight and body fat. I’m not a pro athlete and I’m not training for some major competition, but there’s something addictive about the “quantified self” idea.

On the most basic level, the movement taps into deep-seated human impulses–the quest for self-knowledge and self-improvement, with a touch of narcissism thrown in. By carefully tracking the metrics that define our physical lives, it’s possible to identify trends, make adjustments and, in theory, get a bit better at whatever we’re doing–from running 10Ks to trying to get a good night’s sleep. Of course, for people with serious health issues–from obesity to high blood pressure–health and fitness tracking has a much more immediate, practical appeal. Twenty-six million Americans, for instance, have diabetes: For this demographic, a more convenient tool for monitoring blood sugar is potentially life changing.

All of this is reflected in the sudden proliferation of smart, fitness-related devices and apps. In fact, it’s a little hard to keep up with the latest gadgets. Aside from the examples mentioned earlier, there’s Nike’s FuelBand, Fitbit’s line of activity trackers, and a growing array of watches like Samsung’s new Gear Fit that integrate sophisticated health sensors. The movement is still in its early stages to be sure. As the New York Times point out, lots of these new bands and watches “don’t really work–or at least not as well as their manufacturers would have you believe.” At the same time, the multiplication of accessories, each monitoring separate metrics, is already contributing to a kind of “fitness-tracker overload.” Still, 17 million wearables–including fitness bands and smart watches–will be sold this year, according to market research firm Canalys. By 2017, that number is expected to nearly triple.

These numbers, however, only partly explain the surge of interest from big tech companies in fitness tracking software and hardware.

The real money, not surprisingly, may lie not in apps and wristbands themselves but in the data they collect. Already, companies–with users’ permission, of course–are capitalizing on the massive stores of health information gathered from these devices in innovative ways.

Fitbit, for instance, sells its bracelets and clippable devices–which keep track of metrics like steps taken, distance travelled, and calories burned–in bulk to thousands of employers across the U.S. Employees who opt in are then given the trackers at little or no cost. Their aggregate health data is compiled and, in some cases, used to help the company negotiate lower insurance premiums with providers. This strategy could ultimately lead to a 13% reduction in insurance costs for employers, health insurer Cigna estimated. For this kind of data, and the associated savings, employers may be willing to pay companies like Fitbit handily.

Where the slope gets considerably more slippery is when dealing with personal health data on an individual basis. By now, many consumers have accepted cookies and highly targeted ads as a tradeoff for the convenience of using sites and services like Amazon AMZN, Facebook FB, and even Gmail GOOG. Whether users would be as comfortable getting ads on the basis of their most personal health stats remains to be seen. (Imagine, for instance, a low blood-sugar reading automatically triggering an ad for a soft drink, or a night of tossing and turning leading to a pop-up ad for sleeping pills.) The idea of marketers directly targeting our innermost bodily urges and needs, in real time, would likely take some getting used to.

For now, however, health and fitness tracking–and the quantified self movement–remains in its infancy. Apple’s much-anticipated Healthbook app, not to mention the rumored iWatch to go along with it, has generated endless online buzz, but details remain a hotly kept secret. Leading experts in pulse oximeters (for measuring oxygen content in the blood) and sleep tracking have been brought on board by Apple execs. Meetings have been held with the U.S. Food and Drug Administration to discuss approvals for new mobile medical apps.

But the tech world remains divided on when (and exactly what) Apple will unveil. What is for certain, however, is that Apple’s plunge into the fitness tracking and health data space will only accelerate interest in one of tech’s newest and hottest sectors.

If Nike NKE, which had sold an estimated $33 million worth of FuelBand bracelets in 2013, employing 200 people and even running an accelerator program around the device, was no longer interested, did this spell disaster for the category? What does Nike know that the rest of us didn’t?

Since the news, the top wearable makers have openly touted the future of their business. This week at the TechCrunch Disrupt conference in New York, Hosain Rahman, CEO of Jawbone, said his company will expand the amount of data it tracks and services around it. Jawbone’s UP band accounts for 19% of the fitness tracking device market. Meanwhile Fitbit, which dominates the category with 68% market share, made a short statement to CNET that it’s been doing this for seven years, guys. Fitbit, with products like the Flex, One, and Zip, remains confident, “despite some of the recent sensationalized headlines.”

Even Nike has clarified the initial report, saying it is not giving up on all of fitness tracking, only the hardware part. Nike will stop producing FuelBands itself, but it will continue to build software and fitness tracking apps for phones, smart watches, and whatever other form factor smart devices take.

Nonetheless, it’s clear the fitness tracking and wearables need to evolve beyond their initial offerings. Many of the fitness trackers in their current form are large, unattractive, uncomfortable bracelets. But an even bigger issue is what these devices do. As my colleague JP Mangalindan wrote earlier this week, his quest to become a quant junkie failed when the available options required him to use disparate systems that didn’t talk to each other:

One day, I just stopped using everything. I had invested hundreds of dollars into hardware and software and cobbled them together so I could to get a holistic picture of my day. But the process felt too complicated for its own good — a wristband for sleeping, another for the daytime. An app for eating, and then another running. Why couldn’t there be one piece of hardware and software to rule them all?

Beyond that, merely knowing how many steps you’ve taken each day isn’t all that compelling to a large, mainstream audience. It’s why one-third of consumers have abandoned their devices, according to a report by Endeavor Partners. Industry insiders say the number of inactive fitness tracking devices is likely much higher than that.

For wearables and fitness trackers to become a permanent part of our lives, the devices must become “need to have,” not “nice to have.” The only way to do that is to offer better functionality. I spoke with Sonny Vu, CEO of Misfit, about the future of the category. His company was called Misfit Wearables until recently, when it dropped the word “wearables” from its name.

Vu said he expects fitness trackers to be a tiny part of the overall wearables industry. They’ll be like iPods and GPS trackers – useful to some, but no longer top sellers, and mostly replaced by smartphone apps. Fitness trackers will likely be killed by the smart watch, Vu says.

His company produced a fitness tracking wearable device for practice, even as he knows the category will quickly peak and decline. “We did it because we’re being opportunistic,” he says. “This is where things are going now, and we’re exercising our muscles as an organization to build and ship a product.”

The next step in the evolution of wearable devices will require a more compelling use case. It will need to pass the “turn around test,” he says. That means, would you turn around for it if you were halfway to work and realized you’d forgotten it? Most people would turn around for their phone, keys or wallet. But they wouldn’t turn around for their activity monitors.

“Fitness tracking is just not a compelling use case,” Vu says. “We makers haven’t been able to make it sufficiently compelling. It doesn’t pass the turn around test. It doesn’t even come close.”

Vu is already scheming up ideas to make wearable devices more compelling.

One way to pass the turn around test is with “persistent identity.” Better than fingerprint recognition, wearable devices would use a person’s heart waves to identify them. This proposition becomes compelling, “if it identifies you, opens your car, turns on your lights and you can use it to pay, all with your physiological signature,” he says, “and once your take it off of your body, it is no longer a secure device.”

Vu said this would be similar to Disney’s MagicBands, the bracelets that allow families visiting a Disney DIS theme park to check in, unlock their hotel rooms, enter parks, pay for goods and connect to their photos online, all by scanning a bracelet. MagicBands essentially replace keys and wallets within Disney’s properties. “That is something I could get behind if they could make it a little nicer and it worked outside of the Magic Kingdom and in the rest of the world,” Vu says.

That’s one direction the hot category of wearable devices is likely to go. But for now, Vu is sticking with fitness trackers. Launched in the fourth quarter of 2013, Misfit sold 200,000 devices, a number that’s increasing each quarter. He expects that, like the market for iPods and GPS trackers, fitness trackers like his will decline, and some hardware makers will follow Nike’s footsteps, focusing on smart watch software over hardware.

The era of fitness tracking devices might be waning. But for wearables, it’s still early days.

Meet the designer behind the Fitbit

Gadi Amit has the bearing of an artist, but his salt-and-pepper beard, denim button-down shirt, slim-fit gray slacks, and work-boot-inspired footwear all recall the uniform of a manufacturer—with a little Bay Area flair, of course.

On his wrist is a Fitbit, the trendy piece of wearable tech that combines a pedometer, altimeter, and sleep-tracker. Amit says the device has an intuitive user interface, a good fit for a wearer’s body, and, above all, functionality.

He should know. He designed it.

The Israeli designer, 51, creates products with people in mind. He is perhaps best known for the original Fitbit, but his body of work is varied. In the past, he designed the Palm Zire, which sold over a million units and was one of the fastest-selling personal digital assistants of the early 2000s. He worked with Dell and Netgear to design the Inspiron notebook and Platinum II router, respectively. He has worked on other wearables such as Whistle—a health tracker for dogs—and Sproutling, which is sometimes referred to as a “Fitbit for babies.”

“The hyping effect with all these gadgets is that you’re not really sure you need them,” Amit says. “So how do we make sure that whatever we make becomes part of your life?”

Amit’s design firm in San Francisco, NewDealDesign, is deliberately small, employing just 30 people. But the workshop is open and airy, with a rustic industrial feel. Exposed concrete pillars—remnants of the post-1906 earthquake reconstruction—and metal accents complement the hardwood floors. Pop-art-inspired décor, from furry rugs to bright typographical wall art, infuses the space. A large wall covered in whiteboard paint has a few dozen accurately depicted Star Wars vessels in black dry-erase marker—all sketched from memory by one of the designers.

Sprawled across the workshop’s rectangular floor is an open desk system lovingly dubbed “The Spine,” where designers have side-by-side computer workstations. Off to the side of the main workspace are smaller collaboration rooms with tables, abundant sketchbooks, and more whiteboard walls. In the far back corner of the office, there is a room that houses the technical workshop, where designers spend much of their time creating scale models of their products out of the same foam material used in surfboard cores.

The crude construction process is actually the most important part of designing, Amit says. “A lot of studios make design a little more cerebral and a little more cognitive,” he says. “I’m in the other camp. I like to make design more visceral.” Amit believes in the “wisdom of the hand,” and he instructs his designers to use pens, paper, foam, wood, and other rudimentary materials before switching to computers. “Computers force you to think ahead and kill the serendipity of exploration,” he says. “The strength of the company comes from not only being analytical but also from play.”

The products in Amit’s design portfolio—the Lytro camera, the Fitbit Force, the Better Place electric car charging station, the interactive Sifteo Cubes—have a particular character to them. Whereas design powerhouses like Apple AAPL focus on what Amit calls a “precious” aesthetic—masculine lines, sharp corners, and cool metal—Amit’s designs seem downright cuddly, with rounded edges, soft plastics, bright colors, and durability. In the NewDealDesign world, everything is tactile. The days of placing technology under a glass to be gawked at have passed.

Whistle co-founder Steven Eidelman recalls when he chose Amit’s firm for his product in October 2012. “Some firms were too utilitarian or too practical, or they treated their designs like an art project,” Eidelman says. “Gadi and his team knew the balance.” The firm’s designers also helped Eidelman’s team articulate the company’s brand. “We had no idea what it should look like,” Eidelman says. “It was part therapy for us to come to a point where we understood what we wanted to build. Working with Gadi helped us refine what we wanted.”

When this reporter visits the NewDeal workshop, she is given a rare glimpse into the process of designing a product from start to finish. In one of the collaboration rooms, sketches made with art markers, each slightly different, adorn the walls. The sketches are for a product under development—call it an entertainment device—whose physical form has yet to be determined. Earlier in the day, the client gave their feedback; now, Amit and a few of his colleagues are hashing out the details of the design.

Later, in another meeting in another room, Amit and a different team of designers discuss the progress of a product that is further along. This product—which focuses on personal care—has reached the stage where decisions about final colors and potential names have come into play. “Red is too bloody,” Amit says at one point, with disgust, as a designer brings his attention to the next mockup. For a personal care product, a crimson hue won’t do.

The team moves on to discussing potential names for the product. Suggestions range from the foreign to the familiar to utterly made-up words. With the client holding the final say, the team at NewDealDesign is preparing for all possible outcomes.

It’s this same process that one of the firm’s early customers, Sling Media, endured for its Slingbox media-streaming device. Together, Sling and NewDeal settled on the product’s initial trapezoid shape. They went on to collaborate on more than a dozen new products. “In the design world you can have really crazy people who will die by design and can be difficult to work with,” former Sling project manager Andrew Einaudi says. “Gadi is patient and balanced and very clear. When I started leaning toward the wrong design choice, he would provide guidance.”

Amit grew up in a suburb of Tel Aviv during the 1960s. His parents were both architects, and he remembers needing to hide his LEGO blocks from his father, who also loved to play with them. In high school, Amit gravitated to science and technology. After his mandatory service in the Israeli military, Amit enrolled in the Bezalel Academy of Arts and Design, hoping to become an industrial designer.

His first job was with an Israeli design and manufacturing company called Scitex (now called Scailex) as a model-maker. During the day, he would make models for his boss’s designs. At night, he would model his own versions of the products. “My designs won, time after time,” Amit says.

The early 1990s were an exciting time for computer-based industrial design, and Amit moved to the United States to work at Frog Design under the German industrial designer Hartmut Esslinger. The well-known firm had just finished its work on Steve Jobs’ NeXT computer, and Amit joined in time to work on projects such as a modular storage system for EMC. When the dot-com crash took the air out of the technology industry, Amit felt that it was time to set off on his own.

Amit started NewDealDesign in the wake of the dot-com crash. It turned out to be a boon to the small studio: While major design firms flailed and tried to cover their losses, NewDeal was able to offer better rates. “We were in the boonies [of San Francisco],” Amit says. “It was a sketchy area—although we were adjacent to the offices for Burning Man.”

In the firm’s first two years, headcount grew from two people to 10. The firm went on a tear after making its breakthrough with the Palm Zire; its work for Netgear brought it further acclaim. The 2008 global economic downturn slowed the company’s progress until the Fitbit was released later that year. It has only grown in popularity since; with it, so has NewDeal’s fortunes.

One of Fitbit’s earliest proponents was Michelle Obama. Amit’s first meeting with the first lady of the United States, however, bordered on awkward. The original Fitbit, which is shaped like a large pill and was initially designed for women to clip onto their person, was most effectively worn in the B.F.C.—as in, “bra, front and center.”

“It was kind of embarrassing after it came out,” Amit says, “because at just about every social occasion I had, after I said I designed the Fitbit, a woman would do this.” Amit mimes reaching down the front of his shirt to pull out an imaginary Fitbit. “We got the National Design Award, and when I was at the White House, I started walking forward to shake the hand of the first lady, and she started doing that! And so I stop her, and I say, ‘No, no, no, don’t do that!'”

For future projects, Amit says he wants to focus on the intersection of software, hardware, and cloud designs. He also wants to pump the brakes a bit. NewDealDesign has seen a 50% increase in projects in the last two years, with revenue to match. But Amit wants to keep the firm relatively small, and be the go-to for big problems. To do so, he will be more selective about projects, which can take one to one-and-a-half years to complete from start to finish. (At any given time, the firm is working on about 10 projects, for which it typically charges between $200,000 and more than $1 million each.)

By keeping the firm small, Amit hopes to preserve the serendipity of his design studio.

“We humanize technology,” he says. “We make technology connect, speak, and interact with humans in a positive way. We want people to enjoy technology. We want people to really thrive with technology.”